Micro Focus International reports 117% Net Income growth in 2019 while 9.1% Revenue decline
04 Feb 2020 • About Micro Focus International (
$MCRO) • By InTwits
Micro Focus International reported FY2019 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Micro Focus International has low CAPEX intensity: 5 year average CAPEX/Revenue was 1.0%.
- The company has potentially unprofitable business model: ROIC is 1.7%
- It operates with high leverage: Net Debt/EBITDA is 4.3x while industry average is -1.8x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Micro Focus International's Revenue decreased on 9.1%. Revenue decline happened at the same time with EBITDA margin expansion. EBITDA Margin increased on 2.8 pp from 27.5% to 30.3% in FY2019.
Gross Margin increased on 3.4 pp from 73.0% to 76.4% in FY2019. SG&A as a % of Revenue increased slightly on 1.6 pp from 53.5% to 55.1% in FY2019. During FY2015-FY2019 SG&A as a % of Revenue bottomed in FY2016 at 44.6% and was growing since that time.
Net Income margin surged on 25.5 pp from 18.4% to 43.9% in FY2019.
Investments (CAPEX, working capital and M&A)
Micro Focus International's CAPEX/Revenue was 1.7% in FY2019. CAPEX/Revenue increased slightly on 0.86 pp from 0.83% in FY2016 to 1.7% in FY2019. It's average level of CAPEX/Revenue for the last three years was 1.1%.
Return on investment
The company operates at good ROE (20.9%) while ROIC is low (1.7%). ROIC showed almost no change in FY2019. ROE jumped on 12.1 pp from 8.8% to 20.9% in FY2019. ROIC followed a declining trend at -2.3 pp per annum in the last 5 years.
Leverage (Debt)
Company's Net Debt / EBITDA is 4.3x and Debt / EBITDA is 4.6x. Net Debt / EBITDA increased on 0.1x from 4.2x to 4.3x in FY2019. Debt decreased on 3.7% while cash dropped on 42.7%.
Micro Focus International has no short term refinancing risk: cash is higher than short term debt (3,014.4%).
Valuation and dividends
The company's trades at EV/EBITDA 6.9x and P/E 1.8x.
Management team
Stephen Murdoch is a the company's CEO. Stephen Murdoch is a founder and has spent 1 year with the company. Micro Focus International's CFO Brian D Mcarthur-Muscroft has spent 1 year with the company.
Financial and operational results
FY ended 31 Oct 2019
Micro Focus International ($MCRO) key annual financial indicators| mln. $ | 2015 | 2016 | 2017 | 2018 | 2019 | 2019/2018 |
|---|
P&L
|
|---|
| Revenue | 835 | 1,245 | 1,610 | 3,684 | 3,348 | -9.1% |
| Gross Profit | 743 | 1,110 | 1,243 | 2,689 | 2,559 | -4.9% |
| SG&A | 433 | 555 | 761 | 1,971 | 1,846 | -6.4% |
| EBITDA | 264 | 510 | 626 | 1,014 | 1,015 | 0.1% |
| Net Income | 101 | 163 | 174 | 678 | 1,469 | 116.8% |
Balance Sheet
|
|---|
| Cash | 241 | 667 | 730 | 621 | 356 | -42.7% |
| Short Term Debt | 126 | 275 | 32 | 17 | 12 | -31.6% |
| Long Term Debt | 1,519 | 1,470 | 4,850 | 4,857 | 4,682 | -3.6% |
Cash flow
|
|---|
| Capex | 5 | 10 | 15 | 30 | 56 | 86.1% |
Ratios
|
|---|
| Revenue growth | 92.7% | 49.2% | 29.3% | 128.8% | -9.1% | |
| EBITDA growth | 33.6% | 93.1% | 22.8% | 61.9% | 0.1% | |
|
|---|
| Gross Margin | 89.0% | 89.1% | 77.2% | 73.0% | 76.4% | 3.4% |
| EBITDA Margin | 31.6% | 40.9% | 38.9% | 27.5% | 30.3% | 2.8% |
| SG&A, % of revenue | 51.9% | 44.6% | 47.3% | 53.5% | 55.1% | 1.6% |
| Net Income Margin | 12.2% | 13.1% | 10.8% | 18.4% | 43.9% | 25.5% |
| CAPEX, % of revenue | 0.6% | 0.8% | 0.9% | 0.8% | 1.7% | 0.9% |
|
|---|
| ROIC | 9.1% | 9.2% | 3.2% | 1.3% | 1.7% | 0.4% |
| ROE | | 11.4% | 3.8% | 8.8% | 20.9% | 12.1% |
| Net Debt/EBITDA | 5.3x | 2.1x | 6.6x | 4.2x | 4.3x | 0.1x |
Peers in Software & Computer Services
Below you can find Micro Focus International benchmarking vs. other companies in Software & Computer Services industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Actual Experience ($ACT) | | 2.3% | -49.1% | 195.1% | 79.7% |
| Proactis Holdings ($PHD) | 69.6% | 12.5% | 31.1% | 105.6% | |
| Zoo Digital Group ($ZOO) | 19.9% | 1.5% | 41.7% | 73.2% | |
| Sanderson Group ($SND) | 16.9% | 11.1% | 1.1% | 48.7% | |
| IMImobile ($IMO) | 12.6% | 26.1% | 23.5% | 46.3% | |
| |
|---|
| Median (16 companies) | 6.3% | 11.1% | 11.6% | 16.7% | 6.5% |
|---|
| Micro Focus International ($MCRO) | | 49.2% | 29.3% | 128.8% | -9.1% |
Top companies by Gross margin, %
| Top 5 | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Netcall ($NET) | 90.9% | 91.2% | 91.7% | 90.2% | |
| Proactis Holdings ($PHD) | 80.4% | 82.4% | 86.0% | 88.6% | |
| Sanderson Group ($SND) | 84.5% | 84.1% | 82.2% | 79.6% | |
| Dotdigital Group ($DOTD) | 89.3% | 87.4% | 86.1% | 78.9% | |
| Oxford Metrics ($OMG) | 63.3% | 65.9% | 70.5% | 72.4% | 71.2% |
| |
|---|
| Median (16 companies) | 57.4% | 59.3% | 56.1% | 43.4% | 44.1% |
|---|
| Micro Focus International ($MCRO) | 89.0% | 89.1% | 77.2% | 73.0% | 76.4% |
Top companies by EBITDA margin, %
| Top 5 | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Dotdigital Group ($DOTD) | 32.0% | 30.4% | 31.7% | 26.9% | |
| Proactis Holdings ($PHD) | 26.4% | 23.7% | 3.7% | 25.4% | |
| Oxford Metrics ($OMG) | 28.4% | 23.1% | 19.9% | 23.5% | 21.3% |
| International Bus Mach Corp ($IBM) | 23.1% | 19.8% | 20.5% | 20.9% | 20.7% |
| Sanderson Group ($SND) | 20.2% | 19.9% | 19.3% | 17.4% | |
| |
|---|
| Median (16 companies) | 12.3% | 10.3% | 10.9% | 9.7% | 16.7% |
|---|
| Micro Focus International ($MCRO) | 31.6% | 40.9% | 38.9% | 27.5% | 30.3% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Csf Group ($CSFG) | 7.1% | 4.9% | 8.5% | 16.5% | |
| International Bus Mach Corp ($IBM) | 4.4% | 4.5% | 4.1% | 4.3% | 3.1% |
| Oxford Metrics ($OMG) | 2.4% | 1.8% | 5.8% | 3.9% | 1.3% |
| Unisys Corp ($USY) | 5.0% | 3.0% | 4.1% | 3.8% | |
| Actual Experience ($ACT) | 6.0% | 39.9% | 48.7% | 3.6% | 0.8% |
| |
|---|
| Median (16 companies) | 1.3% | 1.2% | 1.3% | 0.9% | 1.3% |
|---|
| Micro Focus International ($MCRO) | 0.6% | 0.8% | 0.9% | 0.8% | 1.7% |
Top companies by ROIC, %
| Top 5 | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Triad Group ($TRD) | 61.5% | 74.4% | 61.1% | 41.0% | |
| Rm ($RM.) | 289.2% | 254.7% | 73.8% | 39.0% | 31.6% |
| Dotdigital Group ($DOTD) | 31.4% | 28.9% | 29.3% | 26.6% | |
| International Bus Mach Corp ($IBM) | 29.7% | 21.5% | 19.5% | 19.8% | 13.0% |
| Oxford Metrics ($OMG) | 14.6% | 16.3% | 12.7% | 16.4% | 14.7% |
| |
|---|
| Median (18 companies) | 4.3% | 7.1% | 6.4% | 6.4% | 13.0% |
|---|
| Micro Focus International ($MCRO) | 9.1% | 9.2% | 3.2% | 1.3% | 1.7% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2015 | FY2016 | FY2017 | FY2018 | FY2019 |
|---|
| Proactis Holdings ($PHD) | -0.3x | 0.1x | 1.0x | 2.5x | |
| International Bus Mach Corp ($IBM) | 1.3x | 1.7x | 1.8x | 1.7x | 3.8x |
| Zoo Digital Group ($ZOO) | | 38.3x | 3.2x | 0.9x | |
| Netcall ($NET) | -3.4x | -4.3x | -4.3x | 0.3x | |
| Rm ($RM.) | -2.2x | -2.2x | 0.7x | 0.2x | 0.5x |
| |
|---|
| Median (13 companies) | -0.5x | -0.9x | -0.5x | -0.4x | 0.5x |
|---|
| Micro Focus International ($MCRO) | 5.3x | 2.1x | 6.6x | 4.2x | 4.3x |
